Kitzcorp carries a debt default rating of AA (rdp=2.2%) and has issued five-year bonds (rmp=1.9%). The current risk free rate (rf) is 1.75%. For the company's stock, the Market has determined that r=10.5%. It is expected that this mature company will pay a dividend on its common stock of $2.50 per share in one year, and that the dividend should grow at 2% per year there after. What should be the market price per share of Kitzcorp stock (rounded to two decimal places)?

Kitzcorp carries a debt default rating of AA (rdp=2.2%) and has issued five-year bonds (rmp=1.9%). The current risk free rate (rf) is 1.75%. For the company's stock, the Market has determined that r=10.5%. It is expected that this mature company will pay a dividend on its common stock of $2.50 per share in one year, and that the dividend should grow at 2% per year there after. What should be the market price per share of Kitzcorp stock (rounded to two decimal places)?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 23P

See similar textbooks

Similar questions

Smashing Cantaloupes Inc. issued 5-year bonds with a par value of $35,000 and an 8% semiannual coupon (payable June 30 and December 31) on January 1, 2018, when the market rate of interest was 10%. Were the bonds issued at a discount or premium? Assuming the bonds sold at 92.288, what was the sales price of the bonds?
Neubert Enterprises recently issued $1,000 par value 15-year bonds with a 5% coupon paid annually and warrants attached. These bonds are currently trading for $1,000. Neubert also has outstanding $1,000 par value 15-year straight debt with a 7% coupon paid annually, also trading for $1,000. What is the implied value of the warrants attached to each bond?
Waylan Sisters Inc. issued 3-year bonds with a par value of $100,000 and a 6% annual coupon when the market rate of interest was 5%. If the bonds sold at 102.438, how much cash did Williams Sisters Inc. receive from issuing the bonds?
A company has its debt structured as a single zero-coupon bond that matures in 5 years. The face value of the debt outstanding is $40 million and the current value of the company's total assets is $36 million. The standard deviation of the return of its assets is 30 percent per year, and the risk-free rate is estimated to be about 5 percent per year, compounded continuously. Compute the following quantities: Current market value of the company's equity Current market value of the company's debt Continuously compounded cost of debt Suppose this company has a new project opportunity available. This project has an estimated NPV of $3,000,000. If the company undertakes the project, what will be the new market value of equity? Assume volatility is unchanged. Assuming the company decided to undertake the new project and does not borrow any additional funds, what is the new continuously compounded cost of debt? Explain in detail the impact this project has on the cost of debt.
A firm has two classes of securities: long-term bonds and common stock. The bonds have 16 years to maturity, a coupon rate of 5%, semi-annual coupon payments, a yield-to-maturity of 8.6%, and $749 million of total par value. The stock has 31 million shares outstanding and a current market price of $26. When computing the WACC, what weight should the firm assign to its cost of debt? Enter your answer as a decimal and show two decimal places.
ABC company has a dividend payout ratio of 40% and has maintained this payout ratio for several years. The current dividend per share of the company is 60p per share, and it expects that its next dividend per share, payable in one year’s time, will be 65p per share.The capital structure of the company is as follows(image attached).Bond A will be redeemed at nominal value in ten years’ time and pays annual interest of 10%. The cost of debt of this bond is 11.5% per year. The current ex-interest market price of the bond is £96.02. Bond B will be redeemed at nominal value in four years’ time and pays annual interest of 7%. The cost of debt of this bond is 7.5% per year. The current ex-interest market price of the bond is £105.04. ABC has a cost of equity of 15%. Ignore taxation.Calculate the following: 1. Ex-dividend share price, using the dividend growth model. 2. Capital gearing (debt divided by debt plus equity) using market value. 3. Market value weighted average cost of capital.…
ABC company has a dividend payout ratio of 40% and has maintained this payout ratio for several years. The current dividend per share of the company is 60p per share, and it expects that its next dividend per share, payable in one year’s time, will be 65p per share.The capital structure of the company is as follows(image attached).Bond A will be redeemed at nominal value in ten years’ time and pays annual interest of 10%. The cost of debt of this bond is 11.5% per year. The current ex-interest market price of the bond is £96.02. Bond B will be redeemed at nominal value in four years’ time and pays annual interest of 7%. The cost of debt of this bond is 7.5% per year. The current ex-interest market price of the bond is £105.04. ABC has a cost of equity of 15%. Ignore taxation.Calculate the following: 1. Ex-dividend share price, using the dividend growth model. 2. Capital gearing (debt divided by debt plus equity) using market value. 3. Market value weighted average cost of…
Weismann Co. issued 18-year bonds a year ago at a coupon rate of 8 percent. The bonds make semiannual payments and have a par value of $ 1,000. If the YTM on these bonds is 11 percent, what is the current bond price?
five years ago, Highland, Inc. issued a corporate bond with an annual coupon of $5,500, paid at the rate of $2,750 every six months, and a maturity of 14 years. The par (face) value of the bond is $1,000,000. Recently, however, the company has run into some financial difficulty and has restructured its obligations. Today's coupon payment has already been paid, but the remaining coupon payments will be postponed until maturity. The postponed payments will accrue interest at an annual rate of 6.5% per year and will be paid as a lump sum amount at maturity along with the face value. The discount rate on the renegotiated bonds, now considered much riskier, has gone from 8.5% prior to the renegotiations to 12.5% per annum with the announcement of the restructuring. What is the price at which the new renegotiated bond should be selling today? Recall that the compounding interval is 6 months and the YTM, like all interest rates, is reported on an annualized basis. (Enter just the number in…
ABC company has a dividend payout ratio of 40% and has maintained this payout ratio for several years. The current dividend per share of the company is 60p per share, and it expects that its next dividend per share, payable in one year’s time, will be 65p per share. £m £m Equity Ordinary shares (nominal value £1 per share) 30 Reserves 30 60 Debt Bond A (nominal value £100) 30 Bond B (nominal value £100) 14 45 105 Bond A will be redeemed at nominal value in ten years’ time and pays annual interest of 10%. The cost of debt of this bond is 11.5% per year. The current ex-interest market price of the bond is £96.02. Bond B will be redeemed at nominal value in four years’ time and pays annual interest of 7%. The cost of debt of this bond is 7.5% per year. The current ex-interest market price of the bond is £105.04. ABC has a cost of equity of 15%. Ignore taxation. Question - Having undertaken your calculations, you should discuss what…
Frozen Food Bhd has issued a bond with par value of RM1,000, a coupon rate of 9 percent that is paid semi-annually, and that matures in 10 years. If an investor requires a 12 percent yield, calculate the value of the bond. Briefly describe the relationship between the interest rate and bond value. Iriz Bhd paid RM2.00 per share in common stock dividends last year. The company's policy is to allow its dividend to grow at 5 percent for 4 years and then the rate of growth changes to 3 percent per year from year five and on. Assume the required rate of return is 8 percent, calculate the value of the stock.
Suppose that five years ago a corporation issued a 9-year bond with a coupon rate of 6.50% and the indenture specifies a make-whole call premium of 75 basis points over the yield on a comparable Treasury at the time the call provision is exercised. Assume the call is exercised immediately after the payment of a coupon. At the time the issue is called, the yield on a comparable Treasury is 4.05%. What is the current make-whole call price per $100 of par value?